Microsoft prices $25 billion of bonds in ten series, including $2 billion at 6.35 percent due 2066
Microsoft's pricing release gives sizes and coupons for all ten series, and they sum to exactly $25.0bn. The preliminary prospectus shows no financial covenants.
Microsoft priced $25bn of senior unsecured notes on Thursday 29 October, the day after its quarterly results. Bloomberg reported it was the company's first US investment-grade bond sale since 2017. Maturities run from two to 40 years. The preliminary filing sets out the series and their legal terms. Microsoft's pricing release gives the sizes and announced rates.
The release lists two $1.00bn floating-rate series, due 3 November 2028 and 2029. The fixed-rate series begin with $2.00bn at 4.85 percent due 2028 and $3.25bn at 5.00 percent due 2029.
Next come $3.25bn at 5.20 percent due 2031 and $2.50bn at 5.35 percent due 2033. Four more are $4.00bn at 5.55 percent due 2036, $2.00bn at 6.15 percent due 2046, $4.00bn at 6.25 percent due 2056 and $2.00bn at 6.35 percent due 2066. The ten sizes sum to exactly $25.0bn. That matches Bloomberg's figure.
Microsoft's preliminary prospectus supplement lists ten series, so the deal came in ten parts. Two are floating-rate notes paying Compounded SOFR plus a spread, reset quarterly and not callable. Eight are fixed-rate, all with make-whole calls and seven with a par call date. The notes are senior unsecured, ranking equally with Microsoft's other unsecured debt.
The prospectus says the indenture "does not contain financial covenants or meaningful restrictions on us or our subsidiaries". The preliminary supplement left sizes, coupons and spreads blank. As of 30 September, total debt was $35.5bn at carrying value, on a face value of $41.3bn. The new $25bn is about 61 percent of that pre-sale face value. Face value fell $4.87bn in the quarter, from $46.14bn to $41.27bn, according to the 10-Q.
Operating cash flow was $58.0bn and cash additions to property and equipment were $39.4bn, leaving $18.6bn after that capital spending. Cash and short-term investments were $64.5bn.
On the 28 October call, finance chief Amy Hood said Microsoft would "access additional sources of funding when we believe it is attractive to do so". Asked about debt markets, she added "we're fortunate to have access in the debt markets, given that where our ratings are, and we haven't been able to, and we haven't yet, I would say, tap that."
People familiar with the deal put peak orders at $115bn, which is 4.6 times the $25bn sold. That compares peak orders with the final size, not a final order book. The longest note, due 2066, tightened by as much as 0.3 percentage point, to 1.05 points over Treasuries, Bloomberg said. Those two figures are the reported evidence of demand. Neither the release nor the filing confirms them.
The prospectus gives the use of proceeds as "general corporate purposes, which may include, among other things, funding for working capital, capital expenditures, repurchases of our capital stock, acquisitions and repayment of our existing debt." Microsoft has stated no specific purpose for this sale. Its earlier offerings were $13.0bn in October 2015, $19.75bn in August 2016 and $17.0bn in January 2017.
CTOL's view: the terms are now fixed in Microsoft's own release, and the structure is in the filing. The 2015, 2016 and 2017 offerings each filed a second 424B2 a day after the first. No final supplement had appeared on EDGAR when CTOL checked. SEC Rule 424(b) allows two business days after pricing, which makes Monday 2 November the latest date.
The final 424B2 should repeat the 6.35 percent 2066 coupon and show the floaters' spreads and each series' price. A coupon or size that differs from the release would mean a correction. The preliminary filing names no specific use for the money.